In a statement China’s Sichuan Yahua Industrial Group Co Ltd stated, it has signed a deal to supply battery-grade lithium hydroxide to Tesla Inc for the next five years.
According to a filing in the Shenzhen Stock Exchange, Yahua has placed the total value of the contract, signed by its wholly-owned subsidiary Yaan Lithium, at $630-$880 million over 2021-2025.
According to analysts at Daiwa Capital Markets, the total value of the contract translates into a total lithium hydroxide procurement of 63,000 to 88,000 tons.
Earlier this year in May, after Yahua operationalized its 20,000 tons per year lithium hydroxide plant in Yaan city more than doubling its previous capacity; this is despite COVID-19 impact on the lithium market, which is seeing an oversupply pushing down demand and prices to multi-year lows.
With the news reaching the market, Yahua’s shares rose by 10% on Wednesday to $3.05 (19.95 yuan).
Tesla already sources lithium from China’s Ganfeng Lithium, one of the world’s top lithium producers.
The deal underscores Tesla’s “huge demand” for battery-grade lithium hydroxide, “particularly in view of the ramp-up of Model Y production” in Shanghai, wrote an analyst in a note.
“We expect Ganfeng will continue to be the major if not largest lithium hydroxide supplier of Tesla on the back of this strong demand.”
Last month, Tesla secured permission to start selling the Model Y in China.
Tesla did not respond to requests for comments.
($1 = 6.5348 Chinese yuan renminbi)